The Daily Mail City Editor on the Greenspan plan to head off recession

By his own enigmatic standards, Alan Greenspan's testimony to Congress was crystal clear. The US economic machine is spluttering and growth is 'very close to zero at this particular moment'.

If the Federal Reserve chairman is right, the reversal in US economic fortunes is remarkable. It has slumped from 5.6% growth in the second quarter to under half that in the third quarter and has now stopped in its tracks. Heading off a recession - technically two successive quarters of negative output - looks increasingly difficult.

The Fed has already taken the first step with its 1/2% cut in key interest rates on the second trading day of 2001. That did a great deal to steady equity markets, which had seemed in freefall. Confidence seems to be returning and analysts in New York appear to be looking forward to a further rate cut shortly, with Greenspan declaring that inflation is 'well contained'.

What surprised everyone is Greenspan's apparent willingness to support some of the tax cuts promised by President George W Bush. In the past Greenspan has been cautious about fiscal policy. But he has now made it plain that the high levels of budget surplus mean it would be possible both to reduce taxes and pay down the budget deficit.

Moreover, a tax cut enacted early in the Bush years might help to restore consumer confidence and lift spending. However, Greenspan was emphatic in his assertion that it was monetary policy, in the shape of lower interest rates, that would be in the vanguard in combating a slump. The Bank of England should listen closely.

Abbey's waiting game These are heady times for Abbey National's vast army of private shareholders, a legacy of its days as a mutual. Against the market tide, they have seen Abbey shares soar from 622p in March 2000, to 1274p at the turn of the year before easing back to 1190p. This reflects the market judgment that Abbey's days as an independent consumer bank are numbered.

Abbey is in a curious position. It has received and rebuffed two friendly approaches from Sir Brian Pitman, the chairman of Lloyds TSB. At the same time it has been in protracted negotiations with Bank of Scotland about a possible merger.

For the moment, both approaches are on hold. Lloyds TSB, having failed to convince Abbey of the merits of its bid and having initially declined to ask for advice from the Office of Fair Trading, is now seeking that competition clearance, in what is seen as a prelude to a formal hostile bid. The OFT had been expected to advise on whether the bid should be referred to the Competition Commission by 2 February. But it has the right to extend the deadline until 15 February.

In line with recent practice the OFT is likely to look in parallel at the proposed no-premium merger between Abbey and BoS, although there are no obvious competition barriers to such a deal.

The Lloyds approach is much more contentious. Analysts believe a combined Lloyds/Abbey would have 27% of current accounts, 23% of mortgages and 20% of the small and medium sized business market. The Bank of Scotland believes the OFT should look beyond the percentages at the possibilities that a combined group would have for operating a complex monopoly by means of cross-selling.

A Lloyds bid, with fears of redundancies and branch closures, might be politically awkward for Labour ahead of the election. So a competition referral, bottling it all up for three months at least, remains a distinct possibility. This may well mean the Abbey army have a long wait ahead to get the fullest price for their shares. Those who are impatient to cash in still have the option of selling in the market at a price that might have seemed a dream ten months ago.

Iceland tremors Shareholders in Iceland have a right to be sore. While the company's chairman Malcolm Walker soaks up the sun in the Maldives, having collected £13.5m from a pre-Christmas share sale, they have watched the share price plunge after this month's profits warning. Now regulator the FSA wants to know what Walker knew about trading conditions and when.

All of this is greatly unsettling. Blue-chip broker Charterhouse Securities and merchant banker NM Rothschild (Manchester) may wish to consider whether Walker is the kind of chairman they want to be associated with any longer.

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The Daily Mail City Editor on the Greenspan plan to head off recession